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Stifel's Restaurant Stock Menu: What To Buy, What To Sell

Restaurant stocks are on deck to report first-quarter results, and Stifel compiled a list of its top five bullish and bearish ideas in the sector based on a survey of the firm's consumer-focused investors.

The Analyst

Stifel's Chris O'Cull.

The Thesis

Among the survey respondents, McDonald's Corporation (NYSE: MCD) and Restaurant Brands International Inc (NYSE: QSR) were named as top large-cap ideas ahead of the print. Domino's Pizza, Inc. (NYSE: DPZ) was crowned the top mid-cap idea and Wingstop Inc (NASDAQ: WING) ranked as the top small-cap pick.

Domino's

Domino's dominant position as a leader in pizza delivery is a bullish sign, as consumers continued to opt for pizza delivery options in the quarter, O'Cull said, adding that third-party delivery platforms aren't a threat to Domino's.

High expectations heading into the print could "dampen the stock's reaction" even if the numbers come in well, the analyst said.

Domino's should report same-store sales that are at least in-line with the 5.5 percent the Street is looking for, he said.

The analyst maintained a Buy on Domino's Pizza's stock with a price target lifted from $240 to $255.

Wingstop

An uptick in national advertising campaigns, expectations for higher-ticket digital orders and lower chicken wing prices makes Wingstop a top small-cap pick for the quarter, according to Stifel.

A 30-percent year-to-date gain in Wingstop's stock implies the positive expectations are "largely reflected" in the stock, O'Cull said.

Nevertheless, the case for further upside throughout 2018 can be made, but the analyst said he's hard pressed to "recommend aggressive buying" ahead of the print.

The analyst maintained a Buy rating on Wingstop's stock with a price target lifted from $50 to $56.

Yum Brands

Expectations are calling for KFC's same-store sales to fall short of the Street's 2.8-percent estimate.

The stock is trading at a premium valuation versus other highly-franchised restaurant stocks, O'Cull said.

Weaker-than-expected performance in KFC in one quarter doesn't change longer-term expectations of 15-percent EPS growth after 2019, he said.

Stifel maintained a Buy on Yum Brands' stock with a price target lifted from $92 to $94.

Chipotle

Chipotle is expected to report an EPS miss versus the Street's $1.58 estimate.

The company could get a "hall pass," as recently appointed CEO Brian Niccol is only 10 weeks into his new job, O'Cull said.

Niccol is nevertheless expected to detail some high-level strategies to stimulate traffic, the analyst said.

Stifel maintained a Hold on Chipotle's stock with an unchanged $275 price target.

Red Robin

Investors are expecting Red Robin to report an in-line EPS of 75 cents.

Upside in the quarter could come from better-than-expected same-store sales and labor cost savings, O'Cull said.

The company's momentum in the past few quarters could be sustainable, but investors need to see more evidence in the quarter, the analyst said.

Stifel maintained a Hold on Red Robin's stock with a price target lifted from $60 to $65.